803 F.

2d 82

PUBLIC LOAN COMPANY, INC., a Corporation of the State

of New
York; Preferred Equities Corporation, a Corporation of the
State of Nevada; Leonard Rosen; and American Funding
Limited, a Limited Partnership of the State of New Jersey,
v.
FEDERAL DEPOSIT INSURANCE CORPORATION,
Defendant and Third
Party Plaintiff,
v.
EQUITY 1 NATIONAL MARKETING, INC., a body
corporate of the
State of Florida, Third Party Defendant.
Appeal of PUBLIC LOAN COMPANY, INC., Preferred
Equities
Corporation, Leonard Rosen, and American Funding Limited.
No. 86-5047.

United States Court of Appeals,

Third Circuit.
Argued Sept. 10, 1986.
Decided Oct. 7, 1986.

Harvey I. Marcus, Keith O. Evans (argued), Marcus and Evans, Lodi,

N.J., for appellants.
Roger J. Foss (argued), Cassidy, Despo, Foss & San Filippo, Red Bank,
N.J., Lawrence F. Bates, Jane R. Rossnowski, Ira H. Parker, Federal
Deposit Ins. Corp., Washington, D.C., for FDIC.
Before ALDISERT, Chief Judge, and HIGGINBOTHAM and HUNTER,
Circuit Judges.OPINION OF THE COURT
ALDISERT, Chief Judge.

This appeal from summary judgment entered in favor of Federal Deposit

Insurance Corporation (FDIC) requires us to decide whether a provision of the
Federal Deposit Insurance Act, 12 U.S.C. Sec. 1823(e),1 bars the defense of an
oral accord and satisfaction in a claim on a promissory note and whether the
maker and guarantors of a second promissory note properly raised a material
question of fact concerning failure of consideration. We must also decide
whether the district court abused its discretion in discovery rulings. We find
that the district court neither erred in its application of Sec. 1823(e) nor abused
its discretion in its discovery ruling and that the record failed to disclose a
material question of fact as to consideration for the second promissory note. We
will therefore affirm.

I.
2

The historical facts before the district court were somewhat complicated and
extended. See Public Loan Co. v. Federal Deposit Insurance Corp., (D.N.J. No.
82-3606 June 7, 1985), reprinted in app. at 66a-86a. For review purposes we
will summarize only the adjudicative facts. The litigation centers on the
liability of makers and guarantors of two promissory notes. One note in the
amount of $1.5 million was executed and delivered by S.N.L. Realty Company
to the Metropolitan Bank and Trust Company in August 1980. The second, also
payable to Metropolitan, was executed and delivered by Equity 1 National
Marketing Company in the amount of $250,000 in August 1981. In February
1982 Metropolitan became insolvent and the FDIC was appointed its liquidator.
In its capacity as liquidator, FDIC sold, assigned, and transferred to itself in its
corporate capacity the two notes that are the subject of this appeal.

The 1980 S.N.L. Realty note was secured by five separate letters of credit
which equalled the total amount of the note. Public Loan Company obtained
one letter for $750,000 from the Equitable Trust Company of Baltimore. Two
appellants here, Preferred Equities Corporation and Leonard Rosen, served as
guarantors of Public Loan's letter of credit. This letter of credit is the only
aspect of the 1980 note involved in this appeal. The issue on appeal regarding
Equity 1's 1981 note centers on the liability of its guarantors, the four
appellants here who were plaintiffs below: Public Loan, Preferred Equities,
Leonard Rosen, and American Funding, Ltd. The issues are joined from an
attempt by the makers of the notes to obtain a judicial declaration against the
FDIC of no liability and counterclaims by the FDIC asserting the validity of the
obligation.

A.
4

On July 29, 1982, the FDIC presented a sight draft drawn on Public Loan's

On July 29, 1982, the FDIC presented a sight draft drawn on Public Loan's
letter of credit to the Equitable Trust Company for $132,669.23, the amount of
interest due from S.N.L. to Metropolitan on the 1980 note. In a previous suit,
Public Loan sued Equitable and the FDIC in the United States District Court for
the District of Maryland seeking injunctive and declaratory relief--a restraining
order to prohibit Equitable from honoring the FDIC's sight draft; declaring the
letter of credit as having been paid, satisfied, and retired; restraining the FDIC
from making a demand against Equitable on the letter of credit; and for other
relief. The Maryland district court held against Public Loan and permitted the
FDIC to collect the $132,669.23 from Equitable. Public Loan was then
obligated to reimburse Equitable in the same amount.

B.
5

As to the 1981 note, Equity 1 drew out the full $250,000 advanced by
Metropolitan and then defaulted on the note it executed for security. The terms
of the note provided that payment was due, with interest, 90 days after the date
of each draw, and that interest would accrue at 1% over Metropolitan's prime
rate. After the institution of this suit, the FDIC filed a third party complaint
against Equity 1 seeking repayment on the note. The FDIC also counterclaimed
against plaintiffs as guarantors of the Equity 1 note.

C.
6

On October 27, 1982, appellants filed a six count complaint in the district court
of New Jersey against the FDIC. Counts I through IV were identical claims by
the four guarantors of the 1981 note contending that any guarantee they made
on the obligation of Equity 1 to Metropolitan was either nonexistent, made
without consideration, made without proper authority, fraudulently induced, or
otherwise defective, see app. at 3a, and further contending that Metropolitan
defrauded the guarantors by agreeing and then failing to provide certain
financial accommodations to Equity 1, causing Equity 1 to fail in business. Id.
at 3a-4a.

Count I of the complaint asserted jurisdiction under the Federal Tort Claims
Act, 28 U.S.C. Secs. 1346(b), 2671, and under the Federal Deposit Insurance
Act (FDIA), 12 U.S.C. Sec. 1823, which authorizes the FDIC to act as a
liquidator. The FDIC moved to dismiss the complaint and for summary
judgment, arguing that the complaint should be dismissed because appellants
had not complied with the notice provision of the FTCA and that summary
judgment should be granted in its favor on both appellants' complaint and the
FDIC's counterclaim because plaintiffs' defenses to their Equity 1 guarantees
were invalid under Sec. 1823(e) of the FDIA. The district court agreed,

determining that "the claims asserted in Counts I through IV sound in tort, not
in contract," and dismissed those claims because appellants had not complied
with the notice provision of the FTCA. App. at 79a. The court held that it
would grant summary judgment for the FDIC on the complaint's alternative
jurisdictional ground, the FDIA, because under 12 U.S.C. Sec. 1823(e), an
agreement cannot be enforced against the FDIC when the agreement does not
appear in the failed bank's records.
8

The court also granted the FDIC summary judgment on Count VI, Public
Loan's claim for a judicial declaration preventing the FDIC from collecting on
the letter of credit. It determined that Sec. 1823(e) prevented Public Loan from
enforcing an oral accord and satisfaction agreement against the FDIC. App. at
82a-85a. Finally, the court granted summary judgment for the FDIC on its
counterclaim to enforce the guarantees signed by the plaintiffs on the Equity 1
loan. Id. at 85a. On January 9, 1986, the district court dismissed the action
because the parties had settled the remaining count of the complaint. The
plaintiffs thereafter appealed the court's earlier rulings on dismissal, summary
judgment, and discovery. We have jurisdiction under 28 U.S.C. Sec. 1291. The
appeal was timely filed under Rule 4(a) of the Federal Rules of Appellate
Procedure.

II.
9

With respect to the letter of credit posted to guarantee the 1980 promissory
note, appellants apparently contend that the FDIC was not entitled to collect the
interest payment from the Equitable Trust because the full amount of the letter
of credit, or $750,000, had been previously paid to the Bank by Public Loan.
App. at 32a-33a. Accordingly, Public Loan and its guarantors assert the defense
of oral accord and satisfaction. They argue that all the other letters of credit had
been returned upon payment but, for some reason, the letter of credit posted by
Public Loan and guaranteed by Preferred Equities and Leonard Rosen was not
returned.

10

The district court dismissed this count as barred by Sec. 1823(e) of the FDIA.
Because the dismissal was based on the application of a legal precept, review is
plenary. Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 102 (3d
Cir.1981). We are satisfied that Sec. 1823(e) of the FDIA statute sustains the
district court's rejection of the defense of an oral accord and satisfaction. The
statute specifically provides that "[n]o agreement which tends to diminish or
defeat the right, title or interest of the Corporation [FDIC] in any asset acquired
by it under this section, ... shall be valid against the Corporation unless such
agreement (1) shall be in writing ... and (4) shall have been, continuously, from

the time of its execution, an official record of the bank." Here, neither writings
nor bank records substantiated the defense as required by Sec. 1823(e)(1) and
(4). We conclude that plaintiffs could not successfully assert the defense of oral
accord and satisfaction against the FDIC because it did not meet the statutory
requirements.
III.
11

In the district court, the appellants raised far-ranging defenses to the obligations
asserted by the FDIC on the $250,000 note executed in 1981 by Equity 1. Their
complaint states, inter alia, that they never guaranteed "any obligation of
Equity 1 to Metropolitan," and that any such alleged guarantee was:

12

a) nonexistent;

13

b) made without consideration;

14

c) made without proper authority;

15

d) fraudulently induced;

16

e) given for prospective consideration, which consideration ultimately failed....

17

Complaint, Count I-IV, p 11, app. at 3a.

18

Appellants, however, do not assert on appeal that the district court erred in
ruling on all these defenses. They have limited their appeal to one issue only.
They pursue only the contention that the district court erred in ruling on their
failure of consideration defense--that "the guarantees are invalid because no
consideration was ever received for them in that the borrower never received
the loan funds." Br. for appellant at 18.

19

Because the district court decided this issue on summary judgment, we apply
the same standard that the district court should apply, i.e., whether no genuine
issue of material fact remains for trial and the moving party is entitled to
judgment as a matter of law. Goodman v. Mead Johnson & Co., 534 F.2d 566,
573 (3d Cir.1976), cert. denied, 429 U.S. 1038, 97 S.Ct. 732, 50 L.Ed.2d 748
(1977).

20

The district court apparently found no genuine question of material fact on the

question of consideration. It determined that "Equity 1 drew out the full

$250,000 and defaulted on the note." App. at 69a. Affidavits contained in the
record support this conclusion and militate against the appellants' contrary
contentions. Chris Roberts, the FDIC Liquidation Assistant in charge of the
Metropolitan assets, stated in an affidavit that "[t]he Bank disbursed to Equity 1
or its agent, George F. Allen, Jr., Esq., the entire $250,000.00 of proceeds of
the Equity 1 promissory note dated August 12, 1981." Id. at 102a.
21

On appeal, appellants point to no evidence in the record that contradicts

Roberts' statement. An examination of the appendix, however, reveals an
affidavit by Milton Koffman, who signed the note as Treasurer of Equity 1. Id.
at 104a. But Koffman's affidavit did not state that Metropolitan failed to pay
Equity 1 the $250,000; rather he disputes who received the proceeds and the
use to which the proceeds were put, both of which are irrelevant to the issue of
the statutory requirements under Sec. 1823(e).

22

Accordingly, because the moving papers raise no issue of material fact for trial,
appellants' defense of lack of consideration was ripe for summary judgment.
The uncontroverted documents presented to the district court demonstrated that
the guarantees did exist, that the note was made with consideration, and that no
genuine issue of material facts relating to proper authority to enter into the
guarantees was presented. See Celotex Corp. v. Catrett, --- U.S. ----, 106 S.Ct.
2548, 2554, 91 L.Ed.2d 265 (1986).

IV.
23

Appellants also contend that the district court erred in denying their motion to
compel discovery of "documentation central to the case." Br. for appellants at
23. Specifically, appellants object to the district court's affirmance, on October
28, 1983, of a discovery ruling by Magistrate Perretti dated October 13, 1983.

24

This court has previously established the standard of review for discovery:

25

It is well established that the scope and conduct of discovery are within the
sound discretion of the trial court, ... and that after final judgment of the district
court or final agency order, our review is confined to determining if that
discretion has been abused.... To find such abuse it is usually necessary to
conclude that there has been an interference with a "substantial right," ... or that
the discovery ruling is "seen to be a gross abuse of discretion resulting in
fundamental unfairness in the trial of the case."

26

Marroquin-Manriquez v. I.N.S., 699 F.2d 129, 134 (3d Cir.1983) (citations

26

Marroquin-Manriquez v. I.N.S., 699 F.2d 129, 134 (3d Cir.1983) (citations

omitted).

27

Appellants allege that the district court denied them access to documents vital
to the prosecution of their cause of action. We have concluded, however, that
the denial of discovery was due to their dilatoriness in requesting discovery and
the unreasonableness of their requests.

28

Appellants answered the FDIC counterclaim on January 10, 1983, app. at 54a,
but made no effort at discovery until nearly six months later, when they filed,
on June 28, 1983, a motion to extend discovery by 120 days, id. at 172a, and
then served, on July 8, 1983, a deposition notice. Id. at 183a. Local rules for the
District of New Jersey at the time required discovery to be completed within 90
days after the answer was filed. See U.S. District Court Rule 15A (D.N.J.1978).
Thus, appellants did not even begin their discovery effort until nearly 90 days
after the local deadline for completing discovery had passed. Meanwhile,
appellants had not complied with any of the FDIC's timely filed notices for
depositions and document production, or timely propounded interrogatories,
requiring the FDIC to file, on June 16, 1983, a motion to compel discovery.

29

On July 25, 1983, Magistrate Perretti heard both appellants' motion to extend
discovery and FDIC's motion to compel. The Magistrate noted that under Rule
15 the period for discovery was already closed because six months had passed
since the answer had been filed. App. at 365a-66a. Appellants' counsel
nevertheless stated that she desired to obtain from the FDIC "[d]epositions of
employees of the banks and the F.D.I.C." Id. at 366a. The court then gave the
parties 45 more days to schedule depositions only, but refused plaintiffs' request
to extend all discovery 120 days.

30

Incredibly, appellants thereafter served a notice to the FDIC to take extensive

depositions and to produce documents far beyond the scope of the Magistrate's
order. Appellants requested that the FDIC produce, inter alia, "All Officers of
Metropolitan Bank & Trust Co." for deposition, and:

31

All records of any kind whatsoever of Metropolitan Bank and Trust Company
and/or F.D.I.C. regarding Metropolitan Bank and Trust Company or F.D.I.C.
and American Metropolitan Finance Company, Equity 1, Equity 1 National
Marketing, SNL Realty, Public Loan Company, American Funding Limited,
Preferred Equities, Leonard Rosen, George Allen, Benderson, Lee National,
and Earl Serap and all companies he had an interest in, including bank accounts,
checks, checking accounts, minutes of loan committee meetings,
correspondence, notes, fiduciary agreements, guarantees and loan documents.

32

Id. at 200a-01a (emphasis supplied).

33

When the FDIC refused to produce any documents, appellants filed a motion to
compel discovery. Id. at 179a. It was denied. We have examined the entire
record pertaining to discovery and find appellants' contentions to be totally
without merit. Facing the district court was a record that showed appellants'
dilatoriness, lack of good faith in compliance with discovery requests of the
FDIC, and unreasonable requests of their own. The district court was therefore
well within its discretion in limiting appellants' untimely discovery requests.
Any prejudice the appellants suffered therefrom resulted from a self-inflicted
wound.

V.
34

We have considered all of the contentions presented by the appellants.

35

The judgment of the district court will be affirmed in all respects.

Section 1823(e) is a statutory mandate requiring, inter alia, that agreements

asserted against the FDIC must be in writing:
No agreement which tends to diminish or defeat the right, title or interest of the
Corporation [FDIC] in any asset acquired by it under this section, either as
security for a loan or by purchase, shall be valid against the Corporation unless
such agreement (1) shall be in writing, (2) shall have been executed by the bank
and the person or persons claiming an adverse interest thereunder, including the
obligor, contemporaneously with the acquisition of the asset by the bank, (3)
shall have been approved by the board of directors of the bank or its loan
committee, which approval shall be reflected in the minutes of said board or
committee, and (4) shall have been, continuously, from the time of its
execution, an official record of the bank.
12 U.S.C. Sec. 1823(e).